Xerox Corp.'s CEO rushed to seal a proposed deal with Fujifilm Holdings last year, even as Xerox was looking to replace him and had ordered him to cease negotiations with the Japanese company, an amended lawsuit filed this week alleges.

Deason filed several lawsuits earlier this year, one attempting to block the proposed merger by arguing that the deal undervalued Xerox stock and gave Fuji control without providing a premium to Xerox shareholders. He also argued that the joint venture agreement, which was restructured in 2001, includes "an improper and fraudulently concealed 'crown jewel' lock-up agreement" ... that was never disclosed to shareholders."

The other lawsuit addressed Xerox's December deadline for shareholders to nominate board candidates.

He and Icahn together control 15 percent of Xerox.

The combined company would be called "Fuji Xerox" and have dual headquarters in Norwalk, Connecticut, and in Tokyo. It would use the Fuji Xerox brand in Asia and Australia, and the Xerox brand in most other countries.

The existing joint venture employs about 47,000 people globally and Xerox employs about 36,000, with 3,400 of those in Monroe County.

Doubling down on accusations

Deason has now doubled down on his accusations, saying that Xerox’s board of directors allowed Jeff Jacobson to continue negotiating with Fujifilm, even as they had lost faith in Jacobson’s leadership last summer and commenced a search for his replacement. They zeroed in on John Visentin, a Greenwich executive who was later enlisted by Icahn to help stop the Fujifilm merger, as a possible replacement, a statement from Deason alleged Thursday.

Furthermore, he accuses the board of rushing to approve the transaction when there was no reason to, other than to head off a potential proxy battle with Icahn.

When Jacobson learned that he may soon be fired, he abandoned the all-cash transaction route that the Xerox board had previously approved last year concerning a deal with Fujifilm, the lawsuit alleges. Instead, he proposed a deal that ultimately became the 50.1- 49.9 percent ownership structure announced with the potential merger in January, and lobbied to protect his job as CEO, according to the suit. Jacobson will head the new company, if the merger is approved.

For their part, Fujifilm executives seemed keen to push the deal forward, despite the chaos — “If you cancel/postpone your trip to Japan due to your board’s direction, (Fujifilm’s CEO Shigetaka Komori) would be very disappointed and (we) may lose the momentum of the deal,” Fujifilm’s head of strategy, Takashi Kawamura, told Jacobson in a text about a Nov. 21, 2017, meeting, which was included with lawsuit filing.

“We should be the one team to fight against our mutual enemy,” Kawamura continued, referencing Carl Icahn as the “enemy,” the lawsuit argues. Jacobson replied — “We are aligned my friend.”

A preliminary proxy statement filed by Xerox confirms the company started looking for potential CEO candidates last summer, as it was unsure whether company goals would be met by Jacobson. Later, the board determined that goals were likely to be met and that a CEO search would not continue while the company was focused on a potential transaction.

Deason's papers allege that board chair Robert Keegan allowed Jacobson to continue Fuji discussions, even after the board had identified a new CEO.

Also included in the papers was a letter from board member Cheryl Gordon Krongard to Keegan in December, expressing grave concern that Jacobson was not the right man for the job, since he continued negotiations after being instructed not to — "He blatantly violated a clear directive," she said. "We have a rogue executive."

Xerox asserted Thursday that Jacobson has always conducted himself with the utmost integrity as CEO and in negotiations with Fujifilm, and that he at no point exceeded the authority granted to him by the board. Krongard became aware after she sent her letter that Keegan had given Jacobson permission to continue those negotiations, the company alleged.

Not a normal 'merger and acquisition'

The suit alleges that the board allowed Jacobson to continue in talks about the deal, even as they assessed new CEO candidates. Under these circumstances, the proposed deal is unprecedented, opined Columbia law school professor John Coffee in lawsuit paperwork.

“A CEO of the target, facing likely ouster, serves as the loyal agent of the acquirer, designing a deal that is too good to be true: a cheap price, little governance protections, no market check, and a process that ignores other bidders," said Coffee.

It's an unusual merger indeed, said Clifford Smith, the Epstein Professor of Business Administration at the University of Rochester's Simon Business School. First off, joint ventures are typically project-specific — they don't usually last for decades, he said.

It's impossible to know whether the proposed deal is truly the best the company can come up with or if it's cobbling something together at the expense of others, but "there are enough things that are so special about this case, where I think you could with a straight face tell people, 'I’ve never seen anything that looks exactly like this before,'" said Smith.

Xerox stood by its decision to enter into the transaction, in a recent statement from Keegan.

"Xerox strongly believes that Mr. Deason’s lawsuit is meritless and it will vigorously defend itself in legal proceedings," Keegan's statement said. "Xerox’s Board of Directors followed a comprehensive process in reaching its decision to approve the proposed transaction."

Potential board room shake-up

Deason also amended his second suit last week, which alleged that the board has neglected its fiduciary duties by refusing to waive a December deadline included in its bylaws for shareholders to nominate candidates for the board.

New information announced in early 2018 regarding the Fujifilm transaction, among other things, could have affected shareholders’ nomination decisions, Deason alleged. But when he later petitioned the board to reopen the nomination period so he and others could nominate candidates, they refused, the suit alleges.

“Indeed, (Xerox and its board) are preventing (Deason) and all Xerox shareholders from exercising their most fundamental corporate right — the right to exercise their franchise and have a say in the future direction of the company, which is especially necessary at this critical juncture for Xerox,” the lawsuit states.

Icahn nominated a slate of four candidates last year, and he and Deason released a joint letter and presentation this past week outlining their arguments against the Fujifilm transaction so far, and urging shareholders to vote against the transaction and in favor of Icahn's four board nominees.

Xerox responded to the letter Wednesday, saying the shareholders' "highly disingenuous campaign" distorts and omits key facts about Xerox and the proposed merger.

"Informed readers will clearly see numerous misrepresentations and computational errors, including those regarding the company’s debt balance, valuation multiple, margin structure, solid accounting policies, and current management’s track record of strong execution," a company statement read.

In proposing a major merger and control change like this, Xerox is responsible to provide enough information to shareholders for them to make an informed vote, said Smith of the University of Rochester.

"Either they make the case to the stockholders that you're better off approving this than you are not, or it’s not going to fly," he said, adding that when several major stockholders agree on something, it can have "a material impact" that could sway other shareholders come proxy season.

The 2018 annual shareholders meeting, where shareholders will vote on the Fujifilm transaction and potentially vote on director candidates, has yet to be scheduled, according to a Xerox spokesperson.

STADDEO@Gannett.com

Need to catch up? Here’s a timeline

Jan. 2016 — Xerox announces it will spin off into two independent, publicly-traded companies — a document technology company and a business process outsourcing company. In June, Xerox announced the new name for the latter: Conduent, Inc.

Jan. 2017 — The split is completed and Jeff Jacobson takes over as CEO from Ursala Burns. Xerox and Conduent stock take a promising jump up immediately after the split, though revenues fall at Xerox several months later. The company says it’s focusing on a “strategic transformation” to reverse several quarters of declining revenues, including the launch of new products.

June 2017 — Fujifilm Holdings, partly owned by Xerox, announces that losses from “accounting irregularities” related to Fuji Xerox and the company's Australian and New Zealand units were larger than first thought. The losses came in at $340 million.

Dec. 2017 — Carl Icahn, an activist investor who owns a 9.7 percent stake in Xerox, expresses concern about the direction of the company and its interest in shareholder value. He nominates a slate of four candidates for the board of directors, to be voted on at the 2018 shareholders meeting. Xerox contests Icahn’s allegations about shareholder value.

Jan. 11 to 19, 2018 — Rumors swirl that Xerox is cutting a deal with Fujifilm Holdings. Darwin Deason, Xerox’s third-largest shareholder, calls for the disclosure of details about the Fuji Xerox joint venture, which was established in 1962. Icahn calls for the overhaul or dismantling of the deal and Jacobson’s removal, calling the CEO’s leadership "ineffective." Xerox responds by saying the shareholders’ allegations are misleading.

Jan. 26, 2018 — Xerox announces it is vacating Xerox Square, a 30-story tower in Rochester that stands tallest in the downtown district. Employees located there will move to Webster’s Phillips Road campus by mid-year, the company said.

Jan. 31, 2018 — Xerox announces a proposed merger that would combine Xerox and Fuji Xerox, and would give Fujifilm Holdings a 50.1 percent majority control of the company. Jacobson would be CEO of the new company, and the deal is expected to generate at least $1.7 billion in cost savings by 2022, the company said. The deal isn't complete until approved by shareholders.

Feb. 13, 2018 — Deason files a lawsuit, saying that the deal undervalues Xerox, and calls for the termination of the Fuji Xerox joint venture. Xerox said Deason’s allegations are without merit, and maintains its position that the merger is the best path forward for shareholders.

April 15, 2018 — Deason amends his lawsuit to include allegations that Jacobson continued to negotiate a deal with Fujifilm after the board of directors ordered him to stop last year, saying they were looking to replace him. Jacobson lobbied to keep his job during the process, the lawsuit alleges, and he will continue as CEO of the new company. Xerox says Jacobson was authorized to continue negotiations.